Fed raises rates 25 bps
federalreserve.gov
federalreserve.gov
I haven't watched it yet, but Powell's speech is traditionally the more important thing with FOMC meetings, because the speech gives more insight into what the FOMC was worried about / not worried about / etc. etc.
The +25 BPS was long predicted. All eyes are on September, and the only hint at what happens in September is what Powell said today (and the questions the press asked him).
That said your article is about the balance sheet, not the funds rate. The balance sheet will sort itself out over time. They can just let their long-duration assets mature and roll off.
How much do you want to bet that it goes under, say, $1T by 2030?
Generally speaking increases in the size of the balance sheet represent flows into the economy of money. Static balance sheets, or ones that roll off over time, have little to no impact.
We've set up a system to pump trillions into rich peoples' pockets every time they pull the lever and they are going to keep pulling that lever.
Those debt obligations however remain. That future money still has to be paid in to cancel out the debt, whether that comes from home borrowers or from the Treasury.
This allows the institutions who held them to then make loans to individuals.
While the talking heads were clutching their pearls, wringing their wrists, and wagging their fingers over $400B in stimulus checks, ten times that amount was being printed into the real estate market, distributed in rough proportion to real estate holdings. Rich people paying themselves for being rich. "Just" isn't how I'd describe it. Not in magnitude, not in morals.
> Those debt obligations however remain. That future money still has to be paid in to cancel out the debt, whether that comes from home borrowers or from the Treasury
Why? Why do you keep engaging with the hypothetical universe that we do not inhabit where they don't pull the lever again, even though they got away with printing trillions into their pockets the last two times?
Those debt obligations are getting paid back like the father of a deadbeat son is getting paid back: he'll roll the loans so that he can tell his golf buddies that he has been paid back, sure, but he isn't going to be paid back and he doesn't really expect to be paid back.
Money isn't "printed" in the real estate market, valuations are notional.
> Those debt obligations are getting paid back like the father of a deadbeat son is getting paid back: he'll roll the loans so that he can tell his golf buddies that he has been paid back, sure, but he isn't going to be paid back and he doesn't really expect to be paid back.
So what?
In your universe, the aggregate debt comes due, markets tank, and rich people take the L like grown ups.
In my universe, the aggregate debt comes due, markets tank, rich people persuade politicians to pull the lever again, they do, the fed goes and buys their assets, markets go back up, and the fed balance sheet increases. The fed's long-term increasing balance sheet represents a long-term net cash flow right into rich peoples' pockets.
Again, if you are confident in your view of the universe, I'm asking you to put your money where your mouth is.
https://www.bankrate.com/mortgages/historical-mortgage-rates...
so folks have been taking on debt at current rates, and substantially higher ones, for some time.
[0]: https://fred.stlouisfed.org/series/MSPUS
[1]: https://tradingeconomics.com/united-states/inflation-cpi
Even at current interest rates, the prices are quite nuts.
Counterintuitively, it is possible for mortgage rates to go down even when the Feds are raising their rates. The interest rates for us normies are dictated in large part to how confident the financial sector feels. If the Fed's raising of the interest rate makes the financial sector feel that inflation is under control, then mortgage rates may go down.
"The federal funds rate, which was about 11% in 1979, rose to 20% by June 1981. The prime interest rate, an important economic measure, eventually reached 21.5% in June 1982"
We're adjusted to the ZIRP rates from 2008-2021. Unprofitable business ventures that were kicking the can down the road rolling over cheap short term borrowing should go broke as their borrowing rates adjust higher. And sectors like commercial real estate are getting squeezed by remote work and online shopping, raising their borrowing rates should accelerate their failure.
25 BPS is therefore 0.25%.
E.g. If without bps if you have an interest rate of 2% and somebody states that it has increased by 10%, it's unclear whether they meant a result of 2.2% or 12%.
Also, bits per second is very familiar to many of us in the HN audience, but that is just because of our particular technical background. It is the same in other technical areas (such as finance).
I've always found it slightly silly that getting the rates and prices needed to judge the performance of the Fed, Treasury, and so on effectively requires use of a Bloomberg terminal (there are structural reasons why this is the case but the fed wields a big stick).
Even worse in the UK - DMO supposedly not competent in general but I have no first-hand experience.
The original article doesn't even use bps. It just says "In support of these goals, the Committee decided to raise the target range for the federal funds rate to 5-1/4 to 5-1/2 percent"
The title could have just said "Fed raises rate from 5.25 to 5.50". That'd contained a lot more information.
How many times have you seen a post when the submitted article was scorned for not using accurate terminologies?
It's also important to remember inflation is a global phenomenon. US policy might have outsized effect, but it is certainly not the whole story. Global gas prices hit decade-long highs last year, after massive lows during the pandemic. We had to somewhat jumpstart the global economy, and recover from slowdowns during that time as well.
It was the billions in PPP loans that lots of people used fraudulently, including our own politicians. On top of that, it was decided they didnt need to be paid back, so people go to keep all the fancy cars, electronics and real estate they bought with it.
Nearly everything physical shut down (except for home remodeling).
Then everyone wanted everything again right away.
We went through wars in the past without crazy inflation, gulf war, Iraq, Afghanistan. Is it because of all the Ukraine aid we’re sending? If so, why is this different than other conflicts?
How does disease cause inflation?
If factories shut down and supply chains are disrupted and we only make half as many cars this year, how much would people be willing to pay for those cars? Much more.
I personally know companies that got 5-10 million dollars by lying about how many they employed. Any whistleblower programs out there with a reward for reporting them?